In its efforts to snag significant franchisees for its US facilities, the multinational sandwich brand Subway is running across obstacles. Despite its efforts to modernise its ownership structure and move away from small, struggling franchisees, Subway is having trouble luring financially solid investors because of the company’s poor restaurant revenues and the requirement for costly repairs. This article examines the difficulties that Subway has faced, the effects of those difficulties, and any possible repercussions for the business and the sector.
Credits: Reuters
Subway’s Push for Change:
Since 2016, Subway has started shuttering a lot of its US outlets in an effort to move away from tiny franchisees and towards bigger, more experienced operators. The business stated that it wanted to draw multi-unit owners who could make investments in several locations and spur expansion. Subway committed to this goal by hosting its first meeting day for multi-unit owners in April.
Margins and Renovation Concerns:
Despite Subway’s best efforts, the threat of expensive upgrades and low profit margins have turned away prospective franchisees. Multi-unit operators’ advisors observed that their clients abandoned plans to buy Subway restaurants when they learned of the low profitability and requirement for pricey upgrades. The issue of store-level margins has also been brought up by large operators who are assessing growth prospects.
Comparing Sales Figures:
Industry insiders and experts estimate that Subway’s US restaurants’ average yearly sales volume is less than $500,000, which is significantly less than its rivals’. According to QSR Magazine, competing sandwich chains like Jersey Mike’s and Firehouse Subs bring in over $1.1 million and $900,000, respectively. Concerns regarding Subway’s ability to compete in the market are brought up by the discrepancy in sales numbers.
Unattractiveness to Franchisees:
At its stand at the International Franchise Expo, Subway emphasised its 12% growth in comparable sales and listed the characteristics it looks for in multi-unit franchisees. Franchise lawyer Justin Klein, however, disclosed that his company has looked into three possible Subway deals on behalf of clients, all of which failed owing to ambiguity around future ownership changes, undervalued stores, and the requirement for considerable remodelling. John Gordon, a consultant, also described a similar incident in which a fast-food operator turned down the chance to run Subway sites because of the businesses’ poor profit margins.
Lack of Presence among Top Franchisees:
None of the top 100 multi-unit US restaurant franchisees by revenue in 2022, according to a study by Franchise Times magazine, have any Subway outlets in their portfolios. These successful franchisees instead owned a large number of other well-known chains, including Wendy’s, Pizza Hut, Taco Bell, Burger King, and Applebee’s. This lack of participation among top franchisees indicates that Subway needs to address the issues and barriers that have kept big operators from investing in the brand.
Potential Impact:
The inability of Subway to draw sizable franchisees may have important repercussions for the business and the industry at large. Potential investors have expressed worries about profitability and renovations, which Subway should address if it wants to expand its clientele and keep up its edge in the sandwich market. Large franchisees’ lack of interest could also limit Subway’s capacity to innovate and adjust to shifting consumer preferences, potentially resulting in a loss of market share.
Conclusion:
There are difficulties with Subway’s attempts to change its ownership structure by luring sizable franchisees to the US. Potential investors have been discouraged from investing in the brand because of the low restaurant profitability and antiquated shops. The inability of Subway to recruit significant franchisees may limit its ability to expand and maintain a strong competitive edge. In order to increase the appeal of its franchise opportunities, the corporation must solve the issues brought up by investors. Failure to do so could harm Subway’s prospects for success in the cutthroat sandwich market.